Do it yourself

The first half of the year 2024 has been good for global markets. Despite disappointment on rate cuts, geopolitical concerns, sticky inflation, and political changes in many countries, stocks, precious metals, industrial commodities and crypto made a steady move up with very relatively low volatility. A notable feature of the global market movement in 1H2024 was the stark underperformance of Asia ex Japan, even though the Japanese equities being the best equity markets amongst the major global markets. Brazil also underperformed despite a decent rally in commodities. Another notable feature of global markets was the narrow market breadth of US markets. Though the benchmark indices scaled new highs, it was mostly due to parabolic rise in a handful of technology stocks. At present equity markets appear strong on the back of a resilient demand environment, well anchored inflationary expectations and peak interest rates. Fears of earnings failing to match the stock price rise, escalation i...

  Rising participation of household (retail) investors in the Indian stock markets has been a topic of interest for the past couple of years. Most analysts and strategists have highlighted this as a key factor behind a sustained rise in the benchmark indices and low volatility, despite subdued foreign flows. Even the Prime Minister and many senior ministers made it a point in their campaign in the recently concluded general elections. In particular, a consistent rise in household investments in the mutual funds through systematic investment plans (SIP - a popular method to automatically invest a predetermined amount at predetermined intervals) has been cited as a strong support for the Indian equities. Most market participants are confident about this support to the Indian equity markets and its positive impact on the valuation, volatility and breadth of the market. I acknowledge the rise in the participation of household investors in equity markets. I am however not very confident...

  Low household credit in India has been a long running theme for investors in India. In the past three decades, I have observed that almost every presentation made by brokers, money managers, investment advisors, lenders, companies catering to discretionary consumption etc., has highlighted this phenomenon. The market participants and companies have consistently emphasized on low household credit as a single most significant factor enhancing the growth potential of, particularly, financial services and discretionary consumption sectors. However, in the past one year, the narrative seems to have changed somewhat. These days, it is not uncommon to find rising household credit being cited as a key risk to financial stability. The Reserve Bank of India and many analysts have mentioned this factor as a key stress point for the financial stability. The latest Financial Stability Report released by the RBI note...

The Reserve Bank of India (RBI) recently released the half yearly Financial Stability Report (FSR). A key highlight of the latest FSR is RBI’s confidence in the resilience and sustainability of growth in the Indian economy. The report notes “heightened risks and uncertainties” in the global economy and financial system, while highlighting the “remarkable resilience” and receding risks of a hard landing. It also cautions, “While near-term prospects are improving, pitstops in the last mile of disinflation, high public debt, stretched asset valuations, economic fragmentation, geopolitical tensions, climate disasters and cyber threats present downside risks. Emerging market economies (EMEs) remain vulnerable to external shocks and spillovers.” Regardless, the RBI finds the Indian economy on a strong footing. It notes, “Strong macroeconomic fundamentals and a sound and stable financial system have supported the sustained expansion of the Indian economy. Moderating inflation, a strong e...

  EW, notwithstanding My friend’s daughter who completed her MBA recently, has become an amateur trader, just like many of her peers. She has started self-learning technical analysis while trading in stocks, crypto, gold and currencies. During my visit to their place last weekend, she showed me the following 50 years charts of gold prices in USD and INR terms respectively. She wanted my views on the divergence in chart patterns and likely trends in the near future. I am not well versed with technical analysis, particularly the Elliot Wave analysis. I am also not sure if she has drawn the wave cycles correctly on the charts. But assuming she has plotted the cycles correctly,  prima facie,  it appears that in USD terms gold price cycle is close to peak (wave 5 terminating) and is poised for a massive correction of 35-50%; whereas in INR terms the correction (wave 4) could be much lower and the subsequent peak (wave 5) much higher. I imagined various scenarios and found only...

Urbanization is intrinsic to development and often serves as a major driver of economic growth. As India reaches tipping point of transitioning from a mostly rural to an urban society, the focus must be on ensuring the best opportunities for economic growth for all sections of the society. — Dr. Rajiv Kumar, Former Vice Chairman, NITI Aayog In October 2020, the NITI Aayog formed an Advisory Committee on  ‘Reforms in Urban Planning Capacity in India’ , to find ways to face the multiple challenges being faced in the cities and India’s commitments towards global agendas. After extensive deliberation with domain experts and think tanks, the Committee presented its report in September 2021. The highlights of the report are summarized below. ·           India is the second largest urban system  in the world with almost 11% of the total global urban population living in Indian cities. In absolute numbers, the urban population in India is m...

    All citizens of India are very well aware that these are not some random pictures of India’s major metro cities. These represent regular life of the citizens of these cities. Water shortage, water logging, traffic jams, unhygienic colonies inhabited by poor, unplanned and illegal constructions, encroachment of public spaces, dangerously hanging electric supply wires, narrow lanes where fire tenders cannot reach in case of fire accident, stray animals posing risk of peoples’ life, are some of the common characteristics of Indian urbanization. Numerous tier 2 towns and cities in India carry distinguished history, culture and traditions within themselves. However mostly unplanned and unmindful growth has made these cities look alike. Today one would struggle to distinguish Kashi, Patna, Bareilly, Moradabad, Aligarh, Agra, Panipat, Hissar, Jhansi, Praygraj (Allahabad) from each other. They all are equally cacophonous, raging, dirty, ill, concretized and mostly unlivable. The r...

  There is strong evidence emerging that Indian corporates have learned their lessons from the global financial crisis very well. In the post Covid global risk rally, they have avoided most of the mistakes they made during the exuberant years of 2003-2008, and have emerged stronger. In pre-GFC buoyancy companies like Tata Steel (Corus), Tata Tea (Tetley), Tata Motors (JLR), Indian Hotels (Orient Express), Havells (Phillips), Sun Pharma (Taro), Suzlon (Hensen), Hindalco (Novelis), Reliance Telecom (Flag), etc. got lured by cheap debt and bought global businesses (in some cases bigger than their India operations), paying top dollars. Most of these acquisitions inflicted severe pain to the parent entities in the ensuing years. This time, despite near zero rates and abundant liquidity, they have been very careful in acquiring businesses abroad. IT services companies have some niche small sized acquisitions to augment their resource pool. These acquisitions have been mostly earnings...

One of the basic principles of economics is that no one makes abnormal gains (or loss) from an economic activity over a longer period. The forces of demand and supply tend to attain a state of equilibrium as higher margins attract more supplies and lower margins push the marginal suppliers out of the market. In the short term, however, suppliers can make super profits taking advantage of the demand-supply inequilibrium. Most economic activities thus follow a cyclical path rather than a linear path. This principle does not apply to the states where markets are not free and monopolies with state protection and patronage are allowed to thrive at the expense of consumers. We have also witnessed that businesses that own niche intellectual property rights (IPRs) or ownership of scarce natural resources have defied this principle for a much longer period of time, as compared to the usual businesses. Applying this principle to the current market scenario, I find that the investors may be ignor...